Car finance mis-selling scandal: Are you due compensation, how much will you get and when?

It’s hard to go on social media or switch on the television these days and fail to hear about the ongoing car finance scandal. Following a high profile Supreme Court ruling earlier in 2025, the UK’s financial regulator announced an official redress scheme, that put millions of motorists in-line for a share of what’s expected to be over £8.2 billion in compensation payouts.

But with a story that seems to be evolving every week and plenty of financial jargon to wade through, it can be difficult to establish the key questions people have about the car finance scandal…  

• Are you eligible for compensation?  
• How much might you get?
• When might the payments arrive?

Our handy guide to the car finance scandal below explains it all, as well as looking at how the scandal started in the first place. 

Car finance scandal: the background

The origins of the car finance scandal can be traced back to the beginning of 2024 when the Financial Conduct Authority announced that it was launching an investigation into what’s known as Discretionary Commission Arrangements (DCAs).

Outlawed in 2021, DCAs essentially involved lenders artificially inflating interest rates in order to provide the car dealer with additional commission, thus pushing up the cost of finance for the customer. This, according to experts, was the case in roughly 40 per cent of finance deals between 2017 and 2021, costing consumers as much as £500 million per year as opposed to flat commission rates.

Everything came to a head after a Court of Appeal case between customers and some of the UK’s largest lending firms. The judge ruled that any part of a finance deal involving commission that’s not overtly outlined and agreed to by the consumer is unlawful. 

This decision sent shockwaves through the car industry because it meant almost all car finance deals from 2007 could be affected, leaving the customer eligible for compensation. Experts originally estimated that as much as £40 billion could be up for grabs in compensation.

However, in early August, the UK’s highest court, the Supreme Court, overturned the Court of Appeal’s judgement, claiming that dealers do not have a fiduciary duty to act in their customer’s interest, rather than their own. 

Lord Reed, the President of the Supreme Court, delivered the judgement, saying that; “At no point did the dealer give any kind of express undertaking or assurance to the customer that in finding a suitable credit deal it was putting aside its own commercial interest as seller”.

That said, as part of the same case which covered the undisclosed commission, the Supreme Court did uphold a ruling surrounding what was deemed an ‘excessive’ amount of commission. In this instance, commission paid to a dealer accounted for as much as 55 per cent of a car finance loan – something that has now been ordered to be paid back to the customer.

Following this, the FCA said it would consult on an official redress (compensation) scheme. The details of this have now been announced and the framework for who is eligible has been made public. Speaking of which…

Who’s in-line for compensation?

According to the FCA, there are three types of people who can claim car finance scandal compensation: 

1. Those who signed up to a discretionary commissions arrangement (DCA).
2. Those who signed up to a finance deal with excessively high commission but were not informed.
3. Those who signed up to an agreement with a broker who had already given exclusive rights to a specific lender to provide the credit.

All agreements of the types listed above must have been signed between 6 April 2007 and 1 November 2024 to be eligible and are thought to represent roughly 44 per cent of Personal Contract Purchase (PCP) and Hire Hurchase (HP) agreements throughout this period. 

DCAs were outlawed in 2021 so it’s unlikely that anyone signed up to one after that, however, cases of excessive commission and exclusive rights have continued thereafter, hence the broader eligibility timeline up to 2024.

How much will I receive in car finance compensation?

The average car finance scandal payout is estimated to be around £700 per finance agreement. Those who signed up to more than one “unfair” agreement will receive payments for each and thus will be entitled to more.

However, we can be a little more precise than that; according to Moneysavingexpert’s Martin Lewis, consumers will actually be repaid the equivalent of roughly 17 per cent of what they paid in interest. So, if a borrower had paid £3,000 in interest on a car loan, then they would receive £510 back. 

Furthermore, those who paid levels of commission equal to or above half the cost of the car loan and 22.5 per cent of the total cost of borrowing will receive both the interest and commission they paid back. That would equate to a lot more cash than the average payout but it would affect only a small number of claimants.

Nevertheless, the average payout is still less than what was originally expected. When the issue first came to light the general consensus was that motorists would receive around £950 per agreement. That estimate has now been reduced to £700 as a result of the scheme set out by the FCA but even this has been deemed a step too far by the car finance industry.

In a statement, the Finance and Leasing Association's CEO, Shanika Amarasekara, said: “We remain concerned that the costs are too high”. The FLA’s Director of Motor Finance & Strategy, Adrian Dally, also told the BBC’s Today Programme that the number of people whom the FCA claims lost out as a result of missold car finance seems "implausibly high”.

Will I have to contact my lender?

In most cases, those affected by car finance mis-selling will not have to contact their lender; the FCA’s compensation scheme will see lenders forced to contact those affected within six months of its start date. After this those affected will have a further six months to decide whether they want to opt in or not.

For those who have already filed complaints, lenders will have three months from the scheme's start date to write confirming that the complainant is taking part in the redress scheme. If the lender does not hear back after one month, it will be assumed they still want to take part.

The FCA also says that if a claimant is not contacted due to the lender not storing the appropriate information, they will have one year from the scheme starting to make a claim. Consumers are notified that they can choose not to take part in the redress scheme and go to court. This could potentially lead to them receiving even more compensation but success is far from guaranteed and the process could be time-consuming and costly.

When will I receive compensation?

The FCA has not confirmed any dates as to when the redress scheme will commence, however, it has indicated that it aims for the scheme to begin at the early part of 2026, with payment coming in the months thereafter. Given the huge scale of the operation, it could be several months until some receive their payments.

Thinking about buying a new car? Click here for our guide on how to buy a car online...